PA Court Finds Mexico Discriminated Against US Steelmakers in Procurement
The Pennsylvania Commonwealth Court last month found that Mexico discriminated against non-Mexican steel conduit in government procurement through, among other things, state-owned bank loans, energy subsidies, "unfair transshipment schemes" and "permitting misclassification of steel conduit" (Wheatland Tube v. Foreign Country of Mexico, Pa. Cmwlth. # 496).
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Judge Lori Dumas found Mexico liable under Pennsylvania's Public Works Procurement Equalizing Trade Practices Law following a petition from Pennsylvania steel company Wheatland Tube alleging Mexico violated the statute. Dumas determined that the court had jurisdiction over the matter, first settling concerns that Mexico couldn't be sued under the Foreign Sovereign Immunities Act, then noted Mexico failed to respond to Wheatland's petition, essentially leading to default judgment for the steel maker.
The law at issue allows Pennsylvania companies to file petitions with the Commonwealth Court alleging "discrimination" by a foreign country. The statute defines discrimination as "any act, regulation, or policy of a foreign country which," among other things, prevents the importation, sale or use of any goods made in Pennsylvania; grants a preference or competitive advantage to goods made in the foreign country; and imposes discriminatory duties, tariffs or border taxes on foreign-made goods.
Wheatland alleged in its petition that Mexico discriminated against foreign steel by using state-owned banks to "provide low-cost loans to steel companies" and adopting the "Eighth Rule," which is a "concessionary exclusion from tariffs on inputs which allows the steel industry" to import machinery and other inputs that will let the industry make the final product more cheaply.
The petition also said Mexico provides energy subsidies to the steel industry via the state-owned oil and gas company Pemex, misclassifies its exports to the U.S. and engages in transshipment of steel from other countries, such as China, to skirt U.S. duties. Dumas accepted the testimony of Jeffrey Ferry, chief economist at the Coalition for a Prosperous America, and Jim Hays, Wheatland's CEO, that detailed these alleged unfair practices as factual.
As a result, the judge said Mexico's various practices discriminate against the Pennsylvania steel industry. Specifically, Dumas said Mexico's practices "have the practical effect" of granting a competitive advantage to Mexican steel products "by adoption and/or condoning of unfair methods of competition in international trade." The practices also practically discriminate against Pennsylvania-made steel "by the subsidization of steel products and the manufacturing thereof by Mexico."
Simon Lester, a nonresident fellow for the Baker Institute International Economics Program, raised questions about the ruling on his blog, asking if the existence of foreign subsidies alone was enough in this case to find a discriminatory impact on U.S. steelmakers. Lester noted that intent didn't factor into Dumas' decision, and he questioned if intent could be worked into the Pennsylvania statute.
Lester also compared the role of subsidies in Dumas' analysis with its role under the General Agreement on Tariffs and Trade, which somewhat carves out "subsidies leading to national treatment-style discrimination" and has a "separate regime for dealing with subsidies."